Jumping to conclusions is easy, but it's not the best way to analyze potential investments.
For example, you could assume that the coronavirus-lockdown period will go down in history as something of a golden age for media-streaming specialist Roku (ROKU -5.71%). The skyrocketing demand for Roku's products and services driven by our lack of outside-the-home entertainment options will surely never be matched again.
And based on that assumption, you could jump to the conclusion that the stock is due for a sizable drop once social-distancing mandates are relaxed and everybody gets back to something like business -- and entertainment -- as usual.
You could -- but you would be dead wrong.
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It's true that the COVID-19 pandemic is accelerating Roku's growth. Streaming media services are all the rage. Netflix (NFLX -1.96%) added 16 million net new subscribers in the first quarter and Walt Disney (DIS -1.31%) reported 54.5 million subscribers to Disney+ after just six months on the market.
I didn't pick those examples out of a hat. Roku co-developed its first media-streaming box with Netflix to handle that company's fledgling video streams in 2008, and it later subleased Netflix's old headquarters campus to house its own offices. When the House of Mouse launched Disney+, that effort included a significant marketing push -- one part of which involved Roku featuring the new streaming service prominently on every user's start-up screen:
These fruitful industry connections will linger for years. And many consumers in the U.S. and around the world are using streaming services for the first time right now, opening their eyes (and wallets) to a different way of accessing entertainment and news. There's no going back from that. The cable TV cord-cutting trend that started a decade ago is simply getting a secular boost right here.
Roku's ecosystem of licensed software partners is also growing quickly. In January -- before the novel coronavirus turned the world inside out -- the company added new TV-platform clients such as Walmart (WMT -0.28%) store brand ATVIO and Polaroid. Roughly one-third of all smart TV sets sold in America last year use Roku's software as their operating system, and that market share will only grow as Roku expands its partner sphere.
We didn't even talk about overseas growth yet!
Here's the best part. Roku-powered smart TVs are currently only available in the U.S., Mexico, Canada, and the United Kingdom. That means that their market so far includes only about 7% of the population of our great big media-consuming world.
"We haven't broken out the [international] metrics. The vast majority of the active account base is still in the U.S., although international is growing, and we are continuing to expand our presence," CFO Steve Louden said in February's fourth-quarter earnings call. "In existing international markets, we mentioned that our share of TVs will continue to increase, and it's now one in four TVs in Canada, which is great progress there. In Mexico, we're going from two TV brands to nine -- we just recently signed up seven."
The real growth story will start when Roku expands on a truly global scale. So far, international operations don't even merit a mention in the company's quarterly reports.
No, Roku is not on course for a sharp plunge when this phase of social distancing ends. The COVID-19 pandemic was a singular event, and it accelerated an already-impressive growth trajectory, but this skyrocketing stock has a ton of fuel left in the tank.